The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for February last week (PPI). The PPI for finished goods rose 0.4 percent in February from January on a seasonally adjusted basis. Excluding food and energy, the core index for finished goods rose 0.2 percent. The monthly data can be volatile, but these growth rates are roughly in line with their averages over the prior twelve months. The PPIs for energy and food have been driving the changes in the PPI for finished goods in recent months.
Over longer periods high energy costs are transmitted into the core PPIs, not as a direct input, but indirectly through the production process of other inputs. The spike in energy prices that peaked in mid-2008 fed increasing inflation in the core PPI for finished goods, before declining energy prices in the second half of the year slowed core inflation through 2009. Rising energy prices have filtered through to core PPI again in 2011, but the deceleration in energy prices points to a decelerating core PPI for finished goods in 2012.
With respect to building materials, gypsum prices continue to be the main driver for residential construction in 2012, rising 5.1 percent in February from January on a seasonally adjusted basis, following a January increase of 5.9 percent. This puts February gypsum prices 15.2 percent higher than February last year.
Cement and lumber prices, in contrast, are 2.2 percent and 1.6 percent higher than a year ago, respectively. Overall, prices for inputs to residential construction are 4.4 percent above one year ago.